The ECB raises rates by 0.50 basis points and launches the anti-spread shield

The ECB raises rates by 0.50 basis points and launches the anti-spread shield

Double-digit inflation, fears for gas supplies: the European Central Bank takes cover with the first-rate hike since April 2011. The “anti-spread shield” also arrives: the TPI or “Transmission Protection Instrument”

The European Central Bank has launched its first hike in interest rates since April 2011. And it has decided to increase the prevailing expectations: 0.50 points on all three key references: the rate on the main refinancing operations rises therefore at 0.50%, the rate on marginal operations rises to 0.75% and the rate on deposits, which commercial banks “park” at the same institution, exits the negative phase and goes to zero.

Given the context of continued acceleration in inflation, hypotheses also circulated of a rate hike of this magnitude. “The Governing Council – reads a press release – has deemed it appropriate to adopt a first broader intervention in the normalization of the reference rates compared to what was reported in the previous meeting”.

The anti-spread shield also arrives, it will be called TPI, Transmission Protection Instrument, and will serve to “support the effective transmission of monetary policy”. In particular, the Eurotower note reads, “the Governing Council considered it appropriate to take a broader first step in the normalization of the reference rates than reported at the previous meeting. This decision is based on the updated assessment of the Governing Council on risks. of inflation and the increased support provided by the ICT to an effective transmission of monetary policy. This will support the return of inflation to the Governing Council’s medium-term objective by strengthening the anchoring of inflation expectations and ensuring that demand conditions adjust in line with the achievement of the inflation target in the medium term “.

After the ECB’s decision to raise the interest rate by 50 points, positive effects are recorded in all markets in the Eurozone, from Milan to Paris to London. The spread between BTP and Bund rises to 226 points after the ECB raised interest rates by half a point. The Italian 10-year yield is 3.62%, above that of Greece.

In raising interest rates beyond expectations, the ECB confirms concerns about inflation, which now outweigh fears of recession risks. The rates increased by 50 basis points, and therefore brought to zero per cent, in fact exceed the forecasts of analysts, who expected 0.25%.

Not only that, the Eurotower board has promised further rate hikes, perhaps as early as the next meeting on 8 September. In fact, the press release explains that
with inflation that is already approaching the double-digit territory, faced with the risk that it could consolidate above the 2% target set, it is necessary in summary to take measures considering also the fact that a possible shortage of supplies of gas in the coming winter could push prices even higher.

Christine Lagarde, President ECB

“Further normalization of interest rates will be appropriate at upcoming Governing Council meetings. Anticipating the exit from negative interest rates to date allows the Governing Council to move to an approach in which rate decisions are made on a case-by-case basis.” ECB President Christine Lagarde said at a press conference in Frankfurt.

“The future evolution of the reference rates defined by the Governing Council – he said – will continue to be guided by data and will contribute to the achievement of the 2% inflation target in the medium term. In the context of the normalization of monetary policy, the Governing Council it will evaluate the options for the remuneration of excess liquidity “, added Lagarde.

In addition, with regard to the ICC, the president of the ECB stressed that “the Governing Council deemed it necessary to establish the ICTY in order to support the effective transmission of monetary policy. In particular, while the Governing Council continues its path of normalization. , the ICTY will ensure that the monetary policy stance is transmitted in an orderly manner in all euro area countries “.

In conclusion of the press conference in Frankfurt, Lagarde said that “The ICC represents a further tool available to the Governing Council that can be activated to counter unjustified, disordered market dynamics that seriously jeopardize the transmission of monetary policy throughout the euro area. euro. The extent of ICT purchases will depend on the severity of the risks to monetary policy transmission. Purchases are not subject to ex ante restrictions. By safeguarding the transmission mechanism, the ICTY will enable the Governing Council to more effectively fulfill its mandate to preserve price stability “.